Can Modular Solar Farms Bring SunPower Back to Dominance?

SunPower builds the world’s most efficientcrystalline silicon solar cells and is the market-share leader in theCalifornia Solar Initiative. The Silicon Valley-spawned firm has astrong operational track record — and a deep ownership of the solar PVvalue chain. On its most recent quarterly earnings call, SunPowermentioned that it is supply constrained, that its dealer network is onallocation, and that its full 550 megawatts of production is allocatedbased on anticipated bookings.

In addition, SunPower’s firstquarter 2010 showed non-GAAP gross margins of 22.5%; the firm added1,200 MW of project pipeline with its acquisition of SunRay and announced an additional40 megawatt agreement with PG&E.

It seems that SunPoweris doing well — they execute on what they say they are going to do,their acquisition strategy is sound, and their technology continues toadvance.

But industry analysts tend to be very cautious aboutSunPower, typically because of high capital costs in the face of anaggressively competitive climate.

Steve O’Rourke of Deutsche Bank Equity Research writes that these factors are "partially offset byuncertain industry and macroeconomic fundamentals, an opaque businessmodel, and an acquisition that needs validation."

Jeff Osborneof T. Weisel is "concerned that management may be overly relying onItaly, a country that is likely to reduce its solar subsidysubstantially later this year to take effect in 2011" and claims that"SunPower is in a state of transition from being a components-focusedsupplier with some systems exposure via PowerLight and a few tuck-inacquisitions to [becoming] a large-scale systems integrator with a 4 GW+ utility scale project pipeline since the SunRay acquisition."

Osborne adds, "Owning the systems channel can find a home for yourproduct, drive greater revenue and gross margin dollars per watt;however, this process presents some risk over the long term over channel conflict, new revenue recognition rules on sale of project when a debtand equity investor is found, as well as introduces the use of 3rd-party modules to a greater degree for a perceived technology leader."

According to Auriga’s Mark Bachman, "We see SunPower as losing ground to Asianmodule manufacturers, and especially so in the U.S. We note thatmanagement has changed its stance with regard to the California market;the new message is that SunPower has maintained its #1 market shareposition while it has abandoned its prior claim that the company isactually winning share."

I spoke with Matt Campbell, SunPower’s director of utility products,about their modular product.

Each 1 megawatt AC “power block”integrates SunPower T0 Trackers with 400-watt SunPower solar panels,pre-manufactured system cabling, an inverter and a power plant operating system. The power block kits are shipped pre-assembled to the job sitefor rapid field installation. The intent is to streamline thedevelopment and construction process as well as cut costs.

SunPower uses their T0 tracker, which is about 7 feet tall at itshighest point (communities have requested that the trackers staylow-profile and relatively hidden). The tracker uses the usual SunPowerarchitecture of controlling many rows via a single motor — four motorsper megawatt AC.

The utility-optimized panels are bigger thanstandard residential panels — they consist of 128 5-inch cells in about a two-square-meter size, which is as large as one person can reasonably handle.

Campbell mentioned that this falls under the "Ikeamodel" of kitting the product and the "Henry Ford model" of restrictingthe number of model permutations to, well, one. He estimates thisprovides an improvement in balance of system cost of 25 percent through: 1) Savings in materials on steel structure, copper, electrical conduits and table trays, 2) Field labor, and 3) Procurement advantage throughstandardization.

The first utility power plants built with the Oasis power planttechnology will begin construction at the end of the year.

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